The NY Times writes, "Competitors aren't the only ones hurt by Amazon's stance on sales taxes: it also means the loss of considerable revenue to states and localities that badly need it." So because the states "badly need it", the NY Times argues Amazon should give up some of their capital wealth and spread it around to all 50 states? Last I checked, we still live in a capitalist republic not a socialist state. Let me explain the Constitution to ya NY Times, so you understand why charging intrastate taxes is unconstitutional.
First, let me cite Article IV of the Articles of Confederation, which was the first constitution of the United States and formed the core basis for the adoption of the final Constitution.
The better to secure and perpetuate mutual friendship and intercourse among the people of the different States in this Union, the free inhabitants of each of these States, paupers, vagabonds, and fugitives from justice excepted, shall be entitled to all privileges and immunities of free citizens in the several States; and the people of each State shall free ingress and regress to and from any other State, and shall enjoy therein all the privileges of trade and commerce, subject to the same duties, impositions, and restrictions as the inhabitants thereof respectively, provided that such restrictions shall not extend so far as to prevent the removal of property imported into any State, to any other State, of which the owner is an inhabitant; provided also that no imposition, duties or restriction shall be laid by any State, on the property of the United States, or either of them.
In order words, it was critical that states not pass legislation which punished other states via taxes or levies, which could be used to try and gain an unfair competitive advantage.
Further, the final Constitution in Article I Section 10 (Powers prohibited of States) states:
Therefore, the Constitution specifically prohibits interstate taxes and this forms the core heart of American federalism.
No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.
Federalism helps enable interstate economic competition. Those states who enact business-friendly legislation and which allows people to more easily "pursue liberty and happiness" will attract more people and businesses. California vs. Texas is one prime example. California used to be that shining city on a hill due to beautiful climate, low taxes, and plenty of jobs. Well no longer. Texas may now be that shining city on a hill...
Look at what Powerline had to say:
Texas, increasingly, is the economic and intellectual leader of the U.S. During the last 18 months before the current recession took hold, while the country as a whole was still creating jobs, more than half of those jobs were created in a single state: Texas.
Texas has usurped the leadership position that, decades ago, belonged to California. Today California is in decline, likely irreversibly so. William Voegeli draws the sad but instructive comparison in the Los Angeles Times:
In America's federal system, some states, such as California, offer residents a "package deal" that bundles numerous and ambitious public benefits with the high taxes needed to pay for them. Other states, such as Texas, offer packages combining modest benefits and low taxes. These alternatives, of course, define the basic argument between liberals and conservatives over what it means to get the size and scope of government right. ...
California and Texas are not perfect representatives of the alternative deals, but they come close. Overall, the Census Bureau's latest data show that state and local government expenditures for all purposes in 2005-06 were 46.8% higher in California than in Texas: $10,070 per person compared with $6,858. ...
Confronted with a stark choice between government dominance and freedom, Americans are voting with their feet:
One way to assess how Americans feel about the different tax and benefit packages the states offer is by examining internal U.S. migration patterns. Between April 1, 2000, and June 30, 2007, an average of 3,247 more people moved out of California than into it every week, according to the Census Bureau. Over the same period, Texas had a net weekly population increase of 1,544 as a result of people moving in from other states. During these years, more generally, 16 of the 17 states with the lowest tax levels had positive "net internal migration," in the Census Bureau's language, while 14 of the 17 states with the highest taxes had negative net internal migration.Look at this graph comparing Texas vs. California:
Would the NY Times consider that perhaps the problem isn't state tax revenue levels dropping off, but the rampant non-stop spending and monstrous growth of both state and federal governments? According to the City Journal:
Californians have the best possible reason to believe that the state's public sector is not holding up its end of the bargain: clear evidence that it used to do a better job. Bill Watkins, executive director of the Economic Forecast Project at the University of California at Santa Barbara, has calculated that once you adjust for population growth and inflation, the state government spent 26 percent more in 2007-08 than in 1997-98. Back then, "California had teachers. Prisoners were in jail. Health care was provided for those with the least resources." Today, Watkins asks, "Are the roads 26 percent better? Are schools 26 percent better? What is 26 percent better?"
It would appear that Americans are becoming tax-weary and even blue states such as California are all taxed-out. Now that we're in the middle of a prolonged recession and many states' tax revenue is way down, the NY Times is proposing that Internet companies such as Amazon should pay state taxes? I don't think so. In fact, "Get your stinking tax-sucking claws off my Amazon gadgets you damn dirty ape!"
While I appreciate your impassioned response to the New York Times article which comes right out citing the US Constitution, I feel compelled to point out that your citations are in restrictions on the imposition of duties (fees or tariffs) on imports and exports between states. Sales taxes have nothing to do with import/export fees or tariffs. An import/export fee is what you see when articles come into, and go out of, the United States, not in between states - as so directed by your citations.
I would like to direct your readers to understand that even if an Internet merchant doesn't charge you sales tax, you still likely owe the equivalent use tax in your state - which you are supposed to report to your state on your annual tax returns (and remit payment - although most people regularly do neither).
The only reason Internet merchants don’t do this for you (like your local stores do) is that in 1967 & 1992 the issue of "Remote Sellers" came before the US Supreme Court (then in the context of mail order catalog merchants). In both opinions, the court agreed that remote sellers should collect and remit local sales taxes, but they also conceded that requiring remote sellers to keep track of 4,000+ local tax jurisdictions would be too difficult, and that only an act of Congress could empower the States to require remote sellers to collect and remit sales taxes just as local businesses do.
With contemporary companies like Amazon.com and services like iTunes, no one can legitimately question their technical ability to keep track of many millions of transactions per quarter. Further, with the successes of the Internet over the last 25 years, it is time to revisit how difficult it is for remote sellers to manage a mere 10,000+ local jurisdictions.
Remember: Sales taxes are decided upon directly or indirectly by you, in the voting booth at every election. When you vote for local services (police, schools, hospitals, etc) or projects (parks, transportation, sports facilities), these voter mandates are funded almost entirely by local sales tax revenues. When you avoid paying these local sales taxes (intentionally or not), only your local community suffers.
It is time to tell Internet merchants to start collecting and remitting local sales tax, just like the corner store has to. Stop pretending that the transaction is "tax-free" because Use tax is still due.
Your local sales tax should be collected and remitted for you by all merchants! Businesses and individuals should not have to meticulously keep track of all out-of-state transactions, just because keeping track of these local tax jurisdictions seemed so difficult 25 years ago.
R. David L. Campbell
Chief Executive
The Federal Tax Authority (Fed-Tax.net)
I would have to disagree.
Let me quote an article:
In Quill v. North Dakota (1992) the Supreme Court reaffirmed that the US Constitution granted exclusive power to the Congress to regulate interstate commerce and that individual states could not force companies in other states to gather state sales taxes. In that particular case, North Dakota could not compel the Delaware-based Quill corporation, that had no significant presence in North Dakota, to collect sales taxes on the office equipment and supplies it sold mail-order to the citizens of North Dakota. The ruling does not prevent North Dakota from taxing their own citizens for out-of-state purchases, but from forcing a particular means for collecting the taxes. Out-of-state companies can not be made tax collection agents. Only if a company has a significant presence in a state, can the state prevail upon that company to collect such taxes.
you said "When you vote for local services (police, schools, hospitals, etc) or projects (parks, transportation, sports facilities), these voter mandates are funded almost entirely by local sales tax revenues."
Well, I pay plenty of state sales taxes when I go to the mall, go to the movies, attend a concert, etc. There are plenty of other fees and taxes I pay to help my local and state community. For instance, I pay property taxes, car registration fees, and I pay state income tax. If my state (Connecticut) needs more money, then vote to increase my income taxes.
But I wholeheartedly disagree that a citizen in say Oklahoma should have to pay sales tax to Connecticut if that person purchases something via the phone or the Internet to a business located in Connecticut. It destroys the whole concept of federalism.
Further, Connecticut ALREADY collects money from that business in the form of property taxes, business taxes, business fees, etc.
I still contend it is unconstitutional for states to collect sales taxes from citizen's located in another state and as stated previously, the Supreme Court has ruled as such in the past.
We also agree - sales taxes should be collected by merchants based upon the purchasing destination, not the origin. The notion of a citizen (in one state) being charged sales tax (from another state) is one of the most fundamental revolutionary causes of our great nation - as such is taxation without representation. Local sales taxes are quite the opposite - you and I decide on our local sales taxes when we vote - if we do not want to pay more for schools, we simply vote against the ballot measure (and hope a majority of our peers share our view).
To rely upon your example, an Oklahoma citizen purchasing something from a Connecticut Internet retailer should be charged their local Oklahoma sales tax by that Connecticut Internet retailer.
In this example, the Connecticut Internet retailer would squarely fall into the "Remote Seller" definition as laid-out in the US Supreme Court opinions from 1967 (Bellas Hess) and again in 1992 (Quill).
Justice Stewart (1967) stated in the opinion of the Court:
"It is hardly worth remarking that appellant's expressions of consternation and alarm at the burden which the mechanics of compliance with use tax obligations would place upon it and others similarly situated should not give us pause. The burden is no greater than that placed upon local retailers by comparable sales tax obligations; and the Court's response that these administrative and record keeping requirements could 'entangle' appellant's interstate business in a welter of complicated obligations vastly underestimates the skill of contemporary man and his machines. There is no doubt that the collection of taxes from consumers is a burden; but it is no more of a burden on a mail order house such as appellant located in another State than on an enterprise in the same State which accepts orders by mail; and it is, indeed, hardly more of a burden than it is on any ordinary retail store in the taxing State."
The key point which guided the current governing physical presence or nexus requirement was: "these administrative and record keeping requirements could 'entangle' appellant's interstate business in a welter of complicated obligations."
It is this argument which is still being relied upon today (42 years later) by these Remote Sellers. We like to simply point out this often relied upon quote in this debate is taken out of context, particularly when one drops off the last ten words which conclude that very statement "vastly underestimates the skill of contemporary man and his machines."
The ruling went on to point out that on matters of interstate taxation, only an act of Congress could authorize states to require remote sellers to collect and remit local sales taxes. It is this long anticipated act of congress which is now before us, with the "Main Street Fairness Act" soon to be introduced before congress. This act, which should become law, will require all sellers to collect and remit local sales taxes, regardless of nexus. Once again, these are not new taxes, simply uncollected taxes - all merchants *should* collect and remit these taxes so individuals aren't left to police themselves into paying more taxes (as we all know, no one volunteers to pay more taxes).
The Main Street Fairness Act will finally mature an effort which has been underway for the last ten years called the Streamlined Sales and Use Tax Agreement (or SST). SST has been developed collectively by 44 states, along with industry groups and retailers, in an effort to simplify and modernize state-by-state sales tax codes to eliminate the overly burdensome "entanglements" cited by the courts.
We maintain that with basic application of modern technology with SST simplified rules and procedures, systems within e-commerce websites could easily calculate (and collect, and remit) accurate local destination-based sales tax, using techniques akin to real-time shipping calculation - a feature frequently a part of an most modern web purchasing experiences today.
Thank you again for your thoughtfully considered article (and responses). In the near term, we agree with you - that Amazon.com should not be required to collect local sales taxes... That is, unless (or until) all businesses are required to collect sales taxes.
R. David L. Campbell
Chief Executive
The Federal Tax Authority (Fed-Tax.net)
Tom, you're propagating a common misperception about interstate sales tax collection in your last comment.
No one is suggesting that one state levy or collect taxes from citizens of another state. The Main Street Fairness Act and the Streamlined Sales and Use Tax Agreement (SSUTA) it references only give a state the power to collect sales tax from its own citizens. To borrow from your example, SSUTA gives the government of Oklahoma a way to compel merchants in Connecticut to collect sales tax from purchasers who are citizens of Oklahoma to pay for services in Oklahoma, per the laws of Oklahoma. Oklahoma can't levy a tax on the citizens of Connecticut.
Merchants don't pay sales tax, purchasers do. It's also fairly simple for a merchant to calculate and remit sales taxes through the SSUTA mechanisms. Our Taxcloud service goes live later in 2010, and is currently being certified by a number of state governments. You can see a demo at our TaxCloud demonstration site. When a state changes tax laws, our TaxCloud sales tax as-a-service is updated automatically, as are all the merchants who will use it.
For those who don't want to pay sales tax, there is the option to move to one of the handful of states who don't use sales tax as part of their revenue mix: Oregon, Montana and Alaska (outside of Anchorage, that is).
Every other state has a sales tax and corresponding use tax (which captures the same tax revenue when it is not collected by the seller). Sales taxes on internet purchases are not a new tax, just one for which the convenience of collection by merchants is not currently routinely provided.
Why don't you all stop the "I'm smarter than you" tone. It's time that all of us band together and stop the fraud and corruption that our federal, state and local government have perpetrated upon us.
Join your local tea party. Vote out all incumbents.